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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Answer Team Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 79749  
Subject: Re: Question about mutual fund tax efficiency Date: 8/19/1999 2:09 PM
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Generally the answer no, you don't need to worry about tax efficiency of investments in tax deferred accounts like IRA's and 401K's. That is because no tax is due on these until the money is removed from the account.

You do have to worry about cost factors in these accounts. Account maintenance charges. Loads on mutual funds. Transaction fees. Brokerage commissions. Of course the game is to maximize the performance of your investment while minimizing these costs.

Usually it is the capital gains distributions on stock mutual funds--especially good performing ones--that cause the large current income tax bills in taxable accounts. To minimize these, index funds and tax managed funds would be the usual choice. There is the long term buy and hold strategy too. In this case, you pay taxes on the dividend the stock pays, but you only pay tax on the gains on the stock in the year you sell it and then probably at capital gains rates.
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